Legal opinions divided on PERS

House speaker's counsel disagrees with Oregon DOJ assessment

Lauren Dake / The Bulletin

SALEM — Foreshadowing what could be a bruising debate over the state’s pension system this legislative session, lawyers representing state lawmakers said the governor’s proposed changes to the pension system would not be upheld in court.

The legal opinion was requested by Speaker of the House Tina Kotek, D-Portland, and comes on the heels of the state Department of Justice’s analysis, outlining three legal arguments that could be made to support Gov. John Kitzhaber’s proposed changes.

Both legislative counsel’s opinion and the Justice Department’s analysis are in response to Kitzhaber’s efforts to limit the cost-of-living adjustment to the first $24,000 in retirement income for members of the Public Employees Retirement System, or PERS. Kitzhaber is hoping the move could save more than $800 million and has built the assumption into his budget.

“Our opinion shows the specific proposal the governor made around the COLA (cost-of-living adjustment) is problematic,” Kotek said. “It doesn’t mean there aren’t other ... options.”

Kotek said she’s still in the information-gathering stage, which she said is crucial to good policy.

“It’s pretty clear one element of a balanced budget is around PERS, but how large that is and what you’re able to do that is fair and legal and saves money is an ongoing conversation,” Kotek said.

The pension system is facing an unfunded liability of $16 billion. Public employers, such as school districts, pay into the system to fund pensions for their retirees.

Both analyses use the same court case, Strunk v. Public Employees Retirement Board, to help them reach their conclusions.

Dexter Johnson, with legislative counsel, was blunt, “Based on a recent Oregon Supreme Court precedent, we conclude that an attempt to limit the COLA in this way would be found to be a violation of the contract rights of members.”

In a 10-page memo prepared for the governor, Keith Kutler, the attorney for the DOJ’s Tax and Finance Section, also makes it clear that ultimately there are no guarantees until the changes are challenged in court. However, Kutler outlines three possible legal arguments for making the changes, including overturning the court’s 2005 opinion that said the COLA was part of the contract with state employees.

“It’s a question best answered by the Supreme Court,” Tim Raphael, the governor’s spokesman, wrote in an email in response to legislative counsel’s take. “The real question is how we boost funding for education and balance our budget if we’re unwilling to discuss cutting costs like PERS. No one has been able to answer that one.”

House Republicans have made it clear they want to make changes to the PERS system and have said they don’t think the governor’s proposals go far enough.

“The cost of PERS is keeping our local school districts from hiring new teachers and reducing class sizes. In 2003, legal opinions said the same thing, that all PERS reforms were unconstitutional. Fortunately, legislators had the courage to move forward and the Supreme Court upheld many of those reforms,” House Republican Leader Mike McLane, R-Powell Butte, said in a statement.